Bank of Canada Raises Interest Rates by 3.25% And Announces Future Increases
Today, the Bank of Canada raised its interest rate goal to 3.25%, keeping the lending rate at 3.5% and the deposit rate at 3.25%. Additionally, the Bank is keeping up its quantitative contraction strategy. The international and Canadian GDP development is generally in line with the Bank’s July forecast. Infections with COVID-19, persistent supply problems and the conflict in Ukraine threaten to stifle growth and drive up costs.
The Bank of Canada is Emulated by Other Central Banks
Global inflation is still high, and most nations are increasing core inflation measures. As a result, central banks worldwide are maintaining their tightening monetary policy.
Despite a slowdown in economic growth, the US labor market is still quite tight. Shutdowns of COVID continue to provide difficulties for China. Prices of commodities have been turbulent: oil, wheat and lumber costs have softened, whereas natural gas costs have soared.
Due to a decline in gasoline costs, CPI inflation in Canada decreased in July from 8.1% to 7.6%. Nevertheless, inflation, except for fuel, grew, and data imply a further spread of pricing pressures, notably in services. The core inflation indices maintained their upward trend in July, differing from 5% to 5.5%.
Research results imply that forecasts for short-term inflation are still strong. The probability of persistently high inflation increases the longer this goes on.
An Inflation Ease In The Canadian Economy
The Canadian economy is still experiencing excess demand, and the labor market is congested. The second quarter saw a 3.3% increase in Canada’s GDP. Fundamentals of household consumption were robust, with consumption increasing by around 9.5% and capital spending rising by close to 12%. Despite unsustainable growth during the epidemic, the real estate market is retracting.
The Bank is still anticipating a slowdown in the GDP in the second half of this year due to weaker global demand and the beginning of tightening financial conditions in Canada that will bring needs more closely in line with supply.
The Governing Council believes that a further increase in the policy interest rate is necessary given the inflation outlook. The hike in the interest rates is being complemented by quantitative contraction. We will evaluate how much-increased interest rates are necessary to bring rising prices back to target as the impacts of tightening monetary policy spread throughout the economy.
The Governing Council will seek to take the necessary steps to attain the 2% inflation objective as it is steadfast in its commitment to stable prices.
The next time the overnight rate goal will be revealed is October 26, 2022. The Bank will simultaneously release its most recent complete prognosis for the economic system and rising prices in the MPR, together with any risks to the prediction.
